Despite my headline, the Fed’s views were mostly sanitized, self-serving nonsense.
Please consider Minutes of the Federal Open Market Committee January 28–29, 2025
Participants’ Views on Current Conditions and the Economic Outlook
In their discussion of inflation developments, participants observed that inflation had eased significantly over the past two years. Inflation remained somewhat elevated, however, relative to the Committee’s 2 percent longer-run goal, and progress toward that goal had slowed over the past year. Most participants commented that month-over-month inflation readings in November and December had exhibited notable progress toward the Committee’s goal of price stability, including in some key subcategories.
Many participants, however, emphasized that additional evidence of continued disinflation would be needed to support the view that inflation was returning sustainably to 2 percent. Regarding the subcategories, housing services inflation, which had remained elevated for much of the previous year, had shown a decline, as had market-based measures of core non-housing services inflation. Several participants noted that some nonmarket-based services price categories, such as financial and insurance services, had shown less improvement, but a few also observed that price movements in such categories typically have not provided reliable signals about resource pressures or the future trajectory of inflation. Several participants observed that core goods prices had not declined as much on net in recent months compared with earlier in 2024.
With regard to the outlook for inflation, participants expected that, under appropriate monetary policy, inflation would continue to move toward 2 percent, although progress could remain uneven. Participants cited various factors as likely to put continuing downward pressure on inflation, including an easing in nominal wage growth, well-anchored longer-term inflation expectations, waning business pricing power, and the Committee’s still-restrictive monetary policy stance. A few noted, however, that the current target range for the federal funds rate may not be far above its neutral level. Furthermore, some participants commented that with supply and demand in the labor market roughly in balance and in light of recent productivity gains, labor market conditions were unlikely to be a source of inflationary pressure in the near future. However, other factors were cited as having the potential to hinder the disinflation process, including the effects of potential changes in trade and immigration policy as well as strong consumer demand.
Participants observed that the economy had continued to expand at a solid pace and that recent data on economic activity, and consumer spending in particular were, on balance, stronger than anticipated. Participants remarked that consumption had been supported by a solid labor market, elevated household net worth, and rising real wages, which had been associated in part with productivity gains. Several participants cautioned that low- and moderate-income households continued to experience financial strains, which could damp their spending. A few participants cited continued increases in rates of delinquencies on credit card borrowing and automobile loans as signs of such strains.
In their evaluation of the risks and uncertainties associated with the economic outlook, the vast majority of participants judged that the risks to the achievement of the Committee’s dual-mandate objectives of maximum employment and price stability were roughly in balance, though a couple commented that the risks to achieving the price stability mandate currently appeared to be greater than the risks to achieving the maximum employment mandate.
A few participants noted concerns about asset valuation pressures in equity and corporate debt markets. A few participants discussed vulnerabilities associated with CRE exposures, noting that risks remained, although there were some signs that the deterioration of conditions in the CRE sector was lessening. Several participants commented on cyber risks that could impair the operation of financial institutions, financial infrastructure, and, potentially, the overall economy. Several participants commented on vulnerabilities in the Treasury market, including concerns about dealer intermediation capacity and the degree of leveraged positions in the market. The migration to central clearing was noted by a few as an important development to track in this regard.
Regarding the potential for significant swings in reserves over coming months related to debt ceiling dynamics, various participants noted that it may be appropriate to consider pausing or slowing balance sheet runoff until the resolution of this event. Several participants also expressed support for the Desk’s future consideration of possible ways to improve the efficacy of the SRF.
Sanitized Soundbites
The above are sanitized soundbites of what the Fed wants you to know, in a way that the Fed wants you to believe it knows what it is doing.
Notably, the Fed is compelled to cite “progress” despite the fact there has been “negative” progress for four consecutive months.
Year-over-year the CPI the CPI was 2.4 percent in September of 2024. That’s when progress ended. Since them, the year-over-year CPI is up 0.6 percentage points to 3.0 percent.
Core CPI (excluding food and energy) year-over-year was 3.2 percent in June of 2024. It’s made slightly negative progress to 3.3 percent in January, seven months later.
The Fed cited “strong consumer demand” which is amusing in light of the January retail sales report.
Related Posts
February 11, 2025: Trump’s Steel Tariffs Now Will Work as Good as the First Time
Q: How’s that? A: Very poorly.
February 10, 2025: Federal Deficit Is Up $306 Billion Compared to Same Period Last Year
Deficits are rising and Trump will expand them greatly.
February 14, 2025: Retail Sales Crash – Did the Consumer Finally Throw in the Towel?
The Census Department shows huge across-the-board declines in multiple categories, down 0.9 percent overall.
February 12, 2025: CPI Much Hotter than Expected, Core CPI Hotter than Expected
CPI Month-Over-Month Details
- The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.5 percent on a seasonally adjusted basis.
- The index for shelter rose 0.4 percent in January, accounting for nearly 30 percent of the monthly all items increase. Rent of primary residence rose 0.3 percent and owners’ equivalent rent was up 0.3 percent.
- The energy index rose 1.1 percent over the month and the gasoline index increased 1.8 percent.
- The food at home index increased 0.5 percent and the food away from home index rose 0.2 percent over the month.
- The index for all items less food and energy rose 0.4 percent.
- Medical care commodities jumped 1.2 percent and medical care services was unchanged.
The above posts were after the FOMC meeting, but they put a spotlight on just how wrong the Fed was.
Inflation matters, not just consumer inflation.
Neither the CPI nor does PCE comes close to describing inflation because a huge chunk of inflation it is not in “consumer inflation”. It’s in asset prices.
The Fed does not understand this critical point, nor do economists in general.
The CPI Is Deeply Flawed and the Fed Feeds those Flaws
On February 17, I commented The CPI Is Deeply Flawed and the Fed Feeds those Flaws
The Fed makes horrendous policy decisions because it does not understand inflation.
Mish Synopsis of the Fed
The Fed cannot fix what what it refuses to see and does not even understand.